White Collar Crime Prof Blog

Prosecutorial Discretion Is The Better Part Of Valor: Lance Armstrong; FCPA Gabon Sting

One of the supposed hallmarks of the American criminal justice system is the prudent exercise of prosecutorial discretion. But prosecutorial discretion, even when it works, is a blessing and a curse. A blessing, because it allows for the flexibility and compromise without which most systems, even well-constructed ones, cannot function. A curse, because liberty should not depend upon the the character and wisdom of the person temporarily wielding power.

The U.S. Attorney's Office for the Central District of California has decided not to prosecute Lance Armstrong. An announcement to that effect was made last Friday. The L.A. Times story is here. A good Washington Post piece is here. Today's Wall Street Journal discusses the declination and a potential future probe of of improper leaks related to the case.  (An internal investigation of some kind appears to be warranted given the massive leaking that has occurred.) According to the WSJ, the declination decision by U.S. Attorney Andre Birotte and his top aides went against the recommendation of the two line AUSAs handling the case. Maybe, but take it with a grain of salt. News stories about the internal machinations of prosecution teams often get it wrong.  

Based on what I know about the case, the decision to decline appears to have been a no-brainer. Recent federal prosecutions involving alleged drug use by star athletes have expended enormous sums of money with mixed or poor results. In the Armstrong matter, the doping, if it occurred, was not itself a federal crime. Prosecutors would have been peddling a wire fraud theory under which Armstrong allegedly defrauded team sponsors by intentionally violating a contractual obligation to avoid improper drug use. Not very sexy. Twelve typical American jurors might well wonder at the start of such a case, "Why are we even here?" Finally, Armstrong is enormously popular and has a sterling defense team with unlimited resources.

The U.S. Anti-Doping Agency (USADA) vows to continue its investigation, accurately noting that its "job is to protect clean sport rather than enforce specific criminal laws." But USADA wants the grand jury materials. This would be a travesty, and is unlikely to happen. Federal grand jury materials are presumptively secret by law for good reason. Don't count on a federal court sanctioning transfer of grand jury materials to an agency like USADA.

In other declination news, the DOJ attorneys prosecuting the Gabon sting case have informed U.S. District Judge Richard Leon that DOJ is considering dropping all future prosecutions. A decision will be made by February 21. The BLT piece is here.  Full disclosure: I briefly represented one of the defendants, and considered representing another of the defendants, neither of whom has gone to trial. My comments here are based on the public record. The two cases brought to date have resulted in three acquittals and two hung juries. Nobody going to trial has been convicted in what DOJ thought was a sure win. Whatever merit there was in initially bringing the case, reconsideration is in order. The two trials to date have revealed a number of weaknesses. First, this was a sting--a crime engineered by the U.S. Government. Second, the informant who helped orchestrate it was far more compromised than the typical informant in a white collar case. Third, in a key tape recorded conversation between that informant and one of the defendants, the defendant seeks to back out of the alleged unlawful transaction, but the informant reels the defendant back in by telling him that attorneys have approved the deal. Fourth, the inherent ambiguities and weaknesses in the FCPA itself.

If there has been a benefit to the Gabon FCPA prosecution it is this--it has taught the white collar defense bar that FCPA cases can be fought and won and, presumably, has taught DOJ that FCPA cases aren't as easy to win as they first appear. 

(wisenberg)

New Financial Unit Raises Questions

Virtually every presidential State of the Union speech, or its gubernatorial equivalent, calls for tougher criminal laws and/or new investigative resources.  President Obama's address last week was no exception.  The President called for the establishment of a new unit "to crack down on large scale fraud and protect people's investments."  As blog editor Ellen S. Podgor wondered, see here, it was unclear how this unit would differ from the Financial Fraud Enforcement Task Force established in 2009.  I too asked whether this purportedly new unit was anything other than a repackaged version.

The announcement of a new prosecutorial unit also was perhaps an unintended implicit admission that existing federal law enforcement agencies had been less than successful in dealing with serious alleged crimes which some believed had caused the financial crisis.  Both Attorney General Eric Holder and SEC Enforcement Director Robert Khuzami defended their record, stating that not every mistake is a violation of law.  Holder said, "We also have learned that behavior that is reckless or unethical is not necessarily criminal," a statement which (aside from leading me to ask why it had taken him so long to realize it) should be painted on the walls of every prosecutorial office.

The principal apparent structural difference between this unit, entitled the Unit on Mortgage Origination and Security Abuses ("UMOSA"), and the prior one is, besides its more focused jurisdiction, that this is a joint task force of both federal and state officials.  One of its co-chairs -- albeit one of five, four being DOJ or SEC officials -- is New York State Attorney General Eric Schneiderman, who has shown his independence and aggressiveness toward Wall Street by pushing for stronger sanctions against financial institutions for robo-signing and other improprieties committed after the crisis arose.

Generally, joint federal-state task forces are a one-way street.  The feds take the best criminal cases and leave the dregs to the state.  One purported justification for such selection is that federal laws and rules of evidence make it easier for federal prosecutors to bring cases and win convictions.  Schneiderman has indicated somewhat to the contrary -- that New York and other state laws give state attorneys general greater means to bring both civil and criminal prosecutions.

The idea of combining federal and state resources is generally a good one.  Too often law enforcement agencies refuse to share information with other agencies, if at all, until they have determined the information was insufficient for them to act on, often too late for use by the other agencies.  On the other hand, I fear that some task force constituents might attempt to make an end run around constitutional and statutory laws and rules, specificially Fed.R.Crim.Pro. 6(e), which, generally, as relevant here, prohibits disclosure of grand jury information to non-federal officials.  Of particular concern is whether information secured by federal grand juries, much of which is through immunized testimony, will be provided for use by the states.  Both Attorneys General Holder and Schneiderman seem aware of this restriction, but both appear to view it as an obstacle to overcome rather than a right to ensure.  How scrupulous they will be in upholding the rule and spirit of grand jury secrecy will be seen.

(goldman)

Paterno's Death May Affect Trial of Penn State Officials

Joe Paterno is dead, his legacy as one of the greatest coaches in the history of sports tarnished by his termination -- unjust, I believe -- on the grounds that he inappropriately failed to pursue vigorously an allegation of child sex abuse (see here, here and here).

Paterno's death and absence as a witness will likely have little or no effect on the trial of Jerry Sandusky, the former Penn State assistant coach who was the subject of the allegation reported to Paterno by a Penn State graduate assistant coach, Mike McQueary.  Paterno's only information about the Sandusky issues appears to have been the hearsay report by McQueary, and thus it is unlikely that he would have been a witness.

Paterno's unavailability, however, may have a considerable impact on the trials of Tim Curley, the former university athletic director, and Gary Schultz, a former university senior vice president, both of whom have been charged with failure to report the suspected child abuse and perjury.  Both have been charged with falsely testifying that McQueary, when he spoke with them, did not mention serious or criminal sexual conduct.  McQueary, whom the grand jury report (presumably written by the prosecutors) deemed "extremely credible," testified that he reported the specific act to both Curley and Schultz, and seemingly also to Paterno.  Paterno's grand jury testimony, however, apparently was that what McQueary related to him was far less specific, and thus more ambiguous.  Accordingly, while the grand jury report indicated that Paterno would be a corroborative witness for the prosecution in that he was told by McQueary of the alleged "sexual exploitation" and then reported what McQueary had said to Curley and Schultz, his testimony would apparently also have to an extent corroborated their defenses that McQueary was less explicit than he now claims.

In another highly-publicized investigation involving a former college sports coach, former Syracuse University assistant basketball coach Bernie Fine, it has been reported that two of the four men who had accused Fine of molesting them when they were children have admitted that they committed perjury in connection with the case.  One has admitted that he lied when he claimed Fine molested him.  The second, the only one whose allegations fall within the applicable criminal statute of limitations, while still claiming that abuse occurred, has admitted doctoring purportedly supporting emails.

The Fine situation is a reminder that not every allegation of child sexual abuse is true.  Indeed, in my experience, there is a far higher percentage of false accusations of sexual misconduct than of any other criminal activity.  Thus, such accusations should be scrutinized especially carefully before they are acted upon by law enforcement or others.

(goldman)

The Lesson of Joe Paterno

Yesterday's New York Times has an extremely lengthy but disappointingly unilluminating article about the firing by the Penn State Board of Trustees of legendary football coach Joe Paterno (and also Penn State president Graham Spanier) for purportedly failing to take adequate action after being informed that former coach Jerry Sandusky had molested a boy in a Penn State locker room shower (discussed earlier here, here).  The article reports that the Board telephoned Paterno and said, "The Board of Trustees has determined effective immediately you are no longer the football coach."  Paterno immediately hung up.  Shortly thereafter, his wife called the Board and said, "After 61 years he deserved better."

I agree with Mrs. Paterno.  In the months since the Penn State grand jury report became public, I have seen nothing that to me indicates that Paterno acted improperly by promptly reporting the alleged incident to his superiors, even if not to law enforcement.

The lesson of Paterno's firing appears to be that, even if not required by statute or internal rule, one in authority in a corporation, government agency, institution of learning, or similar entity, should protect himself by reporting any tenable allegation of sexual abuse, whether or not substantiated and whether or not he believes it, to law enforcement.  While such a rule might protect the reporter from termination, it might lead to a heyday for defamation lawyers, as well as severe harm to innocent people.

(goldman)

Did Paterno Get a Bad Call?

I have a nagging feeling that Penn State football ex-coach Joe Paterno may have lost the game on a bad call by the referee(s).  Paterno, although not charged criminally, has been fired and vilified for what many suspect was his involvement in a cover-up to protect Penn State and its football program.  While Paterno might arguably be faulted for a moral lapse for not personally reporting the allegation directly to public authorities, he did, promptly and probably accurately, report what he had been told to his administrative higher-ups, including the official in charge of the university police, one of the law enforcement agencies with jurisdiction over on-campus crime.

The basic facts as regards Paterno, according to the Pennsylvania grand jury report (see here), are as follows:  A 28-year old Penn State graduate assistant (known to be Mike McQueary) in March 2002 observed Jerry Sandusky, a former Penn State assistant coach who had access to its football facilities, in a shower room subjecting a boy estimated to be 10 years old to anal intercourse.  The following day, a Saturday, McQueary reported to Paterno "what he had seen."  The next day, a Sunday, according to Paterno he called to his home Tim Curley, the university athletic director and his immediate nominal supervisor, and told Curley that McQueary had seen Sandusky "fondling or doing something of a sexual nature to a young boy."  Subsequently, at a meeting with Gary Schultz, the Penn State senior vice president who oversaw the campus police, Paterno reported (according to Schultz) that Sandusky had engaged in "disturbing" and "inappropriate" conduct in the shower with a young boy.

Approximately one and one half weeks after the shower incident, in a meeting with Curley and Schultz, McQueary testified, he told them he had observed Sandusky having anal sex with a boy.  Paterno was not present at that meeting.

Schultz, who was aware of an allegation against Sandusky in 1998 that was investigated with no resulting arrest, did not report the incident to the police.  Curley and Schultz reported the incident to university now ex-president Graham Spanier as Sandusky "horsing around" in the shower with a "younger" child.  Spanier testified that, as reported to him, the incident was not of a "sexual nature," and he made no report to authorities.

Curley was indicted for making a materially false statement under oath for denying that McQueary (presumably in the meeting not attended by Paterno) had told him that Sandusky had engaged "in sexual conduct or anal sex."  Schultz was indicted for making a materially false statement under oath that the allegations made by the graduate assistant were "not that serious" and that he and Curley "had no indication that a crime had occurred."

Both Curley and Schultz were also charged with the then "summary offense" (less serious than a misdemeanor) of failure to report suspected child abuse.  The applicable Pennsylvania statute (since amended), according to the grand jury report, mandated reporting by "the person in charge of the school or institution" to the Department of Public Welfare.  Presumably that "person in charge" was ex-president Spanier, and Curley and Schultz, it seems, were charged as persons whose alleged playing down of the incident caused Spanier not to make a report.

The criminal case against Curley and Schultz, and the moral case against Paterno, is based to a considerable extent on the accuracy of the un-cross-examined testimony about an incident 9 years ago by McQueary, whom the grand jury, according to the report, found "extremely credible."  It is far from clear exactly what McQueary told Paterno.  Indeed, the grand jury report, which otherwise details what McQueary reported to Curley and Schultz with some specificity, describes what McQueary told Paterno only in very broad strokes -- "what he had seen."  Paterno in a recent statement claimed McQueary did not mention the "very specific actions."  Thus, it appears questionable whether McQueary had reported to Paterno that Sandusky and the child had engaged in anal sex.  Accordingly, when Paterno reported to Curley that he heard Sandusky was "fondling or doing something of a sexual nature," he may well not have been watering down McQueary's report.

Indeed, Paterno is likely the major corroborative witness in the prosecution case against Curley and Schultz.  (The boy, it appears, had not yet been identified.)  The report states that Schultz and Curley "were notified by two different Penn State employees of the alleged sexual exploitation," those witnesses apparently being McQueary and Paterno.  Paterno, Pennsylvania Attorney General Linda Kelly has announced, is not a criminal target.

The public, including me, sometimes feels some satisfaction when it learns of the fall of the rich and famous and the sports figures whom we believe get privileged treatment, and sometimes jumps to hasty conclusions of guilt which turn out to be wrong -- witness the Duke lacrosse players and probably Strauss-Kahn cases.  The grand jury report, most likely written by the prosecution, even while presenting the prosecution case without any challenge by the defense, does not convince me that Paterno did anything wrong -- criminally, civilly or morally.

It may well be that it will ultimately be revealed that Paterno deliberately minimized Sandusky's reported conduct -- and participated in a cover-up -- or that his failure to assume the responsibility to report was a grievous error.  The grand jury report did not concern moral guilt.  And perhaps the prosecutors went out of their way not to criticize Paterno, who, it appears, will be a key witness for them at trial.

Perhaps Paterno acted or failed to act to avoid embarrassment to the university, the football program or himself and/or to protect a colleague from arrest and prosecution, or both.  Perhaps he chose not to go directly to the police or welfare agency for the same or similar reasons.  Paterno, after all, as a coach no doubt believes that "the team" comes first.  He is, as Duke basketball coach Mike Krzyzewski has intimated, also a creature of a different generation -- a generation which believed strongly in personal loyalty and was reluctant to "name names."

The grand jury report itself, however, does not make, and does not support, an allegation that Paterno deliberately participated in a cover-up.

(goldman)

Lauren Stevens Case To Start Tuesday: Has The Government Overcharged?

The federal criminal trial involving former GlaxoSmithKline ("GSK") Vice President and Associate General Counsel Lauren Stevens commences this Tuesday in Greenbelt, Maryland. When I first read the Indictment, without knowing anything else about the facts, it struck me that the government may have overcharged. That is probably not a good sign for the feds, since the Stevens charging instrument is a classic one-sided speaking Indictment that seeks to put the United States' case in the best possible light.

The crux of the prosecution theory is that Stevens, who headed up a team of inside and outside GSK counsel responding to an FDA inquiry, withheld information about off-label marketing of Wellbutrin. Specifically, Stevens allegedly learned that several doctors, paid by GSK and speaking at GSK-sponsored events, promoted off-label (weight-loss) use of the drug. GSK's responses were part of a voluntary production pursuant to a written request from the FDA's Division of Drug Marketing, Advertising, and Communications ("DDMAC"). Stevens allegedly agreed, orally and in writing, to provide DDMA with "materials and documents presented at GSK-sponsored promotional programs, even if not created by, or under the custody or control of GSK." But, according to the Indictment, Stevens knowingly failed to produce numerous off-label promotional and presentation materials, provided to GSK by the doctors in question, with intent to obstruct an FDA proceeding. Rather than focusing entirely or primarily on this failure to produce, the Indictment lumps in many other broad statements contained in Stevens' various cover letters to the government. It seems to me that at least some of these statements are open to differing interpretations. Perhaps the government should have more narrowly honed in on the failure to turn over the presentation/promotional materials.

Part of Stevens' defense will entail her purported reliance on the advice of outside counsel in sending GSK's written responses to the FDA. The original Indictment was thrown out by Judge Roger Titus, because federal prosecutors incorrectly instructed the grand jury that reliance on the advice of counsel is only an affirmative defense. In fact, good faith reliance on advice of counsel negates the specific intent element under the federal obstruction and false statement statutes at issue in the trial.

This prosecution should strike terror into the hearts of inside and outside counsel throughout corporate America. Of particular note is that the FDA inquiry into off-label Wellbutrin marketing did not involve a compelled production and was not even quasi-criminal in nature.

Attached for our readers' benefit are some documents setting out the government's case and what are likely to be key portions of Ms. Stevens' defense.

Here are: Court's Memorandum Opinion Dismissing Indictment, Lauren Stevens Indictment(2), Background Section of Defense Response on Opinion Testimony, and Declaration of Brian O'Connor.

(wisenberg) 

Commentary on Court Dismissal of Indictment Against Former VP & Associate General Counsel of GlaxoSmithKline

Check out - Sue Reisinger, Corporate Counsel, She Asked, Counsel Told: Case Against Glaxo Attorney Is Dismissed

The former VP and Associate General Counsel of GlaxoSmith Kline had been charged with a 6-count Indictment for the alleged crimes of obstruction (1512), falsification and concealment of documents (1519) and false statements (1000). The Indictment against Lauren Stevents has now been dismissed, but it is without prejudice.

Stevens claimed a defense to the charges of advice of counsel in her responses to the FDA's inquiry. The government response was that 18 USC 1519 is a general intent crime and therefore a "good faith reliance on advice of counsel is only a defense to specific intent crimes." 

The court did not agree with the government, citing applicable sources that provide a solid basis for its holding.  My take is that the statute clearly is requiring two intents - to "knowingly alters, destroys, multilates, conceals, coversup, falsifies, or makes a false entry in any record, document, or tangible object with the intent to impeded, obstruct, or influence the investigation ....."  With two intents it seems clear that one should use specific intent here. 

But what is more questionable here is that the government thinks that specific intent should not be required here.  Should you really prosecute someone who may not have had the specific intent to do these alleged acts?  Will this achieve the deterrence from criminality that we desire?  Irrespective of whether one accepts the government's claim that advice of counsel is an affirmative defense or the defense and court position that it negates the mens rea, is prosecution of this alleged conduct the way we want to spend valuable tax dollars?

This case is a perfect example of how we are failing to use our resources wisely.  Do we really need to spend money prosecuting folks who may not have complied with a government discovery request properly? Or would the money be better spent using it for educating lawyers and others of how to respond to government inquiries correctly.  And what happens if we turn the tables - should we start prosecuting Assistant United States Attorneys who do not comply with constitutional requirements of discovery, or would our resources be better spent educating them of the importance of upholding these constitutional rights. 

Bottom line - don't refile this case. 

(esp) 

Addendum - See here

Grand Juries Are Not For Trial Preparation

In a case pending and set for trial in March in the Central District of California, with allegations of FCPA and money laundering violations, DOJ prosecutors are seeking to start another grand jury investigation of the defendants. Lawyers for the defendants cried foul and moved to quash five subpoenas calling for testimony today. As a result, the federal judge presiding over the case imposed stringent conditions on any use of the grand jury by DOJ prosecutors. 

A grand jury is not to be used for "strengthening [a] case on a pending indictment or as a substitute for discovery." (Beasley, Simels, Arthur Andersen).  Prosecutors claimed that their purpose in questioning these witnesses, all current employees of the company under indictment, was for a "new" investigation. Interestingly, the filings show that this "new" grand jury investigation came immediately after DOJ prosecutors were denied access to the employees for pre-trial, witness preparation interviews.

Defense lawyers Jan Handzlik and Janet Levine also argued that the DOJ prosecutors were "manufacturing" a new investigation to create reasons to postpone the trial, set for March 29th. They suspected the government would seek a superseding indictment leading to a trial continuance. Prosecutors disagreed and filed an under seal, in camera declaration to justify the new investigation.

US District Judge Howard Matz denied the defense motion to quash the grand jury subpoenas, but issued an order that handed the DOJ prosecutors what some of us consider to be a stinging defeat. He placed conditions on what the government could do if it chose to proceed with its "new" investigation, stating in part:

(1) At the upcoming trial, the Government may not proffer or refer to any newly obtained evidence derived from the testimony of any witness before any grand jury session conducted after the return of the First Superseding Indictment on October 21, 2010. . . .

(2) The Government may not, and shall not, question any witness about any business and financial relationship that the [defendant ] Company had with [other individuals and entities named in the pending indictment]

(3) The Government may not, and shall not, question any witness about any of the other events that directly form the basis for the charges contained in the first superseding indictment.

(4) The Government shall file under seal a transcript or transcripts of the grand jury testimony it obtains from the aforementioned witnesses, and it shall do so by not later than one week before the start of trial, and

(5) The Government may not point to or rely on whatever evidence it obtains at the upcoming grand jury sessions to seek or obtain a continuance of the trial date.

Defense counsel in this case are Jan L. Handzlik (Greenberg Traurig LLP) and Janet I. Levine (Crowell Moring).

See Court's Order - Download Matz min order re GJ

See also Richard Cassin, FCPA Blog, Sparks Fly Before LA Trial

(esp)

Corruption in Florida?

At the end of this past year, the Statewide Grand Jury in Florida issued its first Interim Report - Statewide Grand Jury Makes Anti-Corruption Recommendations in First Interim Report. (Report is here) According to the press release issued at that time -

"Key recommendations of the Statewide Grand Jury include:

- Expanding the definition of public employees to include private employees contracted by government entities that perform government services;
- Creating sentencing enhancements for offenses committed by officials who use their public position to facilitate their crimes;
- Creating an independent State Office of Inspector General, responsible for hiring and firing agency Inspectors General;
- Expanding definition of criminal bid tampering to include bid-rigging schemes; and
- Authorizing the Ethics Commission to initiate investigations with a supermajority vote of commission members."

This report comes at an interesting time, as the American Law Institute is gearing up for a new project called Principles of Government Ethics.

(esp)

Three Federal Grand Jury Reforms

I had a fun time commenting about grand jury reform yesterday at the Overcriminalization 2.0 Conference in Washington, DC--our nation's capital.

Here are three of my ideas for improving the federal grand jury's fairness. No doubt others have thought of these improvements as well.

1. All fraternization between prosecutors and grand jurors should be strictly forbidden. Federal grand jury proceedings are supposed to be on the record. But this policy can be circumvented by informal conversations between grand jurors and prosecutors, before grand jury begins or during breaks. Even if testimony is not conveyed through such informal discussions, friendship and camaraderie can develop, particularly over the long haul of a white collar investigation. This makes it far more likely that the grand jurors will bend to the prosecutor's will and resolve all doubts and issues in his/her favor. My suggestion is that the grand jurors be treated more like petit jurors, in terms of the informal contact that prosecutors are allowed to have with them. In addition to promoting fairness, such a reform should impress upon the grand jurors the seriousness and sanctity of their work.

2. All summarizing of prior evidence and testimony by the prosecution should be strictly prohibited. Federal prosecutors are not allowed to "deliberate" with the grand jury. That means they can't sit in with the grand jurors and try to sway their votes. The prohibition applies whether or not the grand jury is engaged in deliberations just prior to voting. What sometimes happens over the 18 month course of a white collar grand jury investigation is that jurors ask questions about the credibility of witnesses and the content of prior evidence and testimony. The prosecutor cannot comment upon the credibiltiy of witnesses, but can summarize prior evidence and testimony. Suppose a grand juror says, "I just don't believe this last witness, Mr. Smith. Isn't what he said inconsistent with what Mrs. Jones said?" Under current rules, the prosecutor may respond as follows. "I cannot comment upon Mr. Smith's credibility, because I cannot deliberate with you. But I am allowed to summarize prior testimony. What I can tell you is that Mr. Smith's testimony is inconsistent with Mrs. Jones' testimony and with the testimony of every other witness we have heard from, including seven of your fellow citizens and five FBI Special Agents."  The ability to summarize thus inherently lends itself to potential abuse. This potential should be eliminated, and the prosecutor should be confined to telling grand jurors that they can ask to examine evidence or have prior testimony read back to them by an agent.

3. The case agent should be required to inform federal grand jurors under oath of all exculpatory information that the government is aware of. DOJ already encourages prosecutors to disclose exculpatory evidence to the grand jury and some jurisdictions require it as an ethical matter. I suggest here something further. The case agent should be required to reveal to the federal grand jurors under oath, in every case, all exculpatory information in the government's possession or that the government is aware of. This will facilitate the delivery of relevant information to the grand jurors, by forcing the prosecutor and case agent to focus on the question of exculpatory information. What could be more relevant to a grand jury's charging decision than information inconsitent with guilt? Isn't this the fair thing to do?

These three suggested reforms have at least three things in common: 1) they will improve the fairness of the grand jury process; 2) they pose no risk of physical harm or danger to any government witness or employee; and 3) they impose no significant time or cost burdens on the government.

(slw)

Feds are armed and dangerous in BP criminal investigation

Guest Blogger - Dan Cogdell  

As the Justice Department prepares a grand jury investigation of possible crimes involved in the BP oil spill, ex-CEO Tony Hayward is looking smarter for leaving this country for reasons beyond his lack of popularity. 

Multiple indictments are likely to be sought, charges could reach well up the corporate ladder and British citizens who are not in this country when indicted might have protection from “double criminality,” which prevents extradition unless the same action is a criminal offense in both countries. It’s very possible the Justice Department will stretch the envelope and that could put their use of U.S. laws in a place not covered by European Union law.

There is no question the federal government is taking dead aim at environmental crimes in the BP oil spill or that the legal artillery is formidable. Federal prosecutors were already ramping up their environmental crime filings before the Deepwater Horizon started spewing oil into the gulf. Now, with massive public pressure, this could be the environmental version of the Enron prosecutions.

This week (8/23-8/27) the U.S. Coast Guard and the Interior Department are holding hearings in Houston to further investigate the BP disaster. Witnesses who invoke the Fifth Amendment may not look like team players, but they will be taking the smartest path.

Expect prosecutors to take fullest advantage of the powerful and far-reaching tools they have available. Expect them to issue more than just wrist slaps and corporate fines out of the Refuse Act, the Migratory Bird Treaty Act and the Clean Water Act. Expect them to seek jail time. There is a lot going in their favor.

Prosecutors will most assuredly rely on the “Responsible Corporate Officer Doctrine,” which allows Clean Water Act violations to be directed at even top corporate officers. Prosecutions under this theory have resulted in convictions of people who were not even at work sites and, in one case, not even working for a company but had “honorary power.” (See United States v. Hanousek, 176 F. 3^rd 1116 (9^th Cir. 1999), cert. denied, 528 U.S. 1102 (2000), and United States v Brittain, 931 F2d 1413 (10^th Cir. 1991)) The “Responsible Corporate Officer Doctrine” may be the prosecutor’s ticket to tag BP’s hierarchical elite while soothing the related political nightmare currently facing the U.S. government.

In a Clean Water Act misdemeanor case, the government does not have to prove that anyone intentionally caused this enormous harm. Negligence is a comfortably lower bar for these prosecutors. And this isn’t BP’s first rodeo. A company culture that prosecutors contend encourages money-saving over safety has landed BP in the government’s sights time and time again, and will only bolster the prosecutor Howard Stewart’s efforts.

Whether BP employees or contractors believe they are targets or not, they must balance the idea of seeing justice done with protecting themselves and their employer. Taking the Fifth at this point may be the least popular but most prudent move.

Dan Cogdell is a Houston-based criminal defense attorney with Cogdell & Ardoin who has represented numerous clients in environmental and white-collar criminal cases.

(DC)

Roger Clemens Indicted

The Washington Post story is here and has a link to the indictment. Nothing yet up on PACER. Clemens is charged in six counts with perjury, false statements, and obstruction of Congress.

(slw)

Clemens to be Charged?

The Wall Street Journal is reporting here that baseball great Roger Clemens will soon be indicted by a federal grand jury for perjury.

(slw)

The Grand Jury - SEALS Panel Explores Reforms

A panel of law professors at the Southeast Association of Law Schools (SEALS) explored grand jury reform. The first speaker was Professor Roger Fairfax (George Washington), who provided a historical overview of the grand jury.  He noted its place constitutionally and provided what role reform might play if the Congress revises federal criminal law.  Next up, Professor Eric Miller (Saint Louis), looked at encouraging grand jurors to act more forcefully in telling the prosecutor what should be prosecuted. Professor Ric Simmons (Ohio State) looked at how to make the grand jury more independent. One item he advocated for was having evidence rules apply to the grand jury. Professor Andrew Leipold noted how little reform has occurred with regard to the grand jury -- "an incredibly stable world."  He asked whether this is a problem that needs a solution. The final speaker was Professor Margaret Lawton (Charleston), who said that we should look at reforms being suggested.  She noted how reforms put forth by NACDL match with items in the US Attorneys' Manual. But the question here, she stated, may be what is happening in practice. 

The panel was moderated by Professor Katrice Copeland (Penn State), who asked thoughtful questions that brought out important points on reforming the grand jury process.  From these questions, the panel talked about - what would the world look like without a grand jury. They looked at various reform proposals - such as why not have the grand jury having options beyond indict or not indict.  Mentioned several times was whether the grand jury should have a role of providing diversion.  They also considered whether a reform proposal would work to the benefit of the defendant or prosecutor. Professor Copeland questioned whether more things should be added to the grand jury's role when so many agree they are not doing a satisfactory job.  The panel discussed what procedures from state grand jury procedures should be adopted in the federal system.

Professor Roger Fairfax noted his forthcoming book - Grand Jury 2.0 (Carolina) that includes pieces from law professors on many aspects of the grand jury and reforms that might enhance this process.

(esp) (blogging from Palm Beach, Florida)

Zach Scruggs, Meet Frank Costello

Mob boss Frank Costello, one--time head of the Luciano crime family, faced charges in the 1950s for tax evasion, the favored means to attack the Mafia before the advent of RICO -- think Al Capone.  Costello's case went to the Supreme Court on the question of whether a defendant can challenge a grand jury indictment on the ground that there was insufficient admissible evidence on which to charge a crime.  Costello came to mind when I read Zach Scruggs' latest challenge to the attempted bribery charges against him and his father, Dickie Scruggs.  In a motion filed on March 3 (available below), Zach seeks dismissal for prosecutorial misconduct because two government witnesses, an FBI agent and the alleged offeror of the bribe, Tim Balducci, gave testimony to the grand jury that he claims was "patently false and misleading in material respects and undoubtedly led to the erroneous indictment of Defendant Zach Scruggs."

While not quite the same claim as Costello, Scruggs is asking for dismissal because the evidence to charge him with a crime was insufficient.  Calling it a motion to dismiss for "prosecutorial misconduct" is a way to avoid the Supreme Court's decision in Costello v. United States, 350 U.S. 359 (1956), which held that "[a]n indictment returned by a legally constituted and unbiased grand jury, like an information drawn by the prosecutor, if valid on its face, is enough to call for trial of the charge on the merits."  The Court rejected Costello's claim that the grand jury did not have enough evidence to charge him because only summary witnesses testified, and further denied his request to use its supervisory power to require prosecutors to present admissible evidence to the grand jury.  The Court stated, "Petitioner urges that this Court should exercise its power to supervise the administration of justice in federal courts and establish a rule permitting defendants to challenge indictments on the ground that they are not supported by adequate or competent evidence. No persuasive reasons are advanced for establishing such a rule."  It seems that Zach's motion is exactly that, asking the district court to review the evidence and find it so flawed that he would not have been indicted.  Costello rejected the use of supervisory power to fashion a rule to challenge indictments, and the Court has been rather hostile to dismissal based on generalized claims of misconduct (see United States v. Williams, 504 U.S. 36 (1992)).

Defendants who want to challenge an indictment because they don't believe there is sufficient evidence to even charge them with a crime have only one option: go to trial and win the case.  That's not the most inviting way to challenge an indictment, but Costello makes it clear that a head-on challenge to an indictment is not going to succeed.  (ph)

Download us_v_scruggs_zach_scruggs_motion_to_dismiss_indictment_march_3_2008.pdf

How Not to Ask Questions

Perjury is definitely in the news these days, with the FBI investigating Roger Clemens for his statements before a Congressional committee and Detroit Mayor Kwame Kilpatrick's testimony in a whistleblower lawsuit denying a relationship with an aide under review by the local prosecutors office.  One of the highest profile perjury cases involves home run king (and apparently unwanted free agent) Barry Bonds, whose charges was dismissed by U.S. District Judge Susan Illston because of flaws in the indictment.  Judge Illston ordered the release of the transcript of Bonds' grand jury testimony in 2003 (available below) that now reveals the entirety of the nearly three-hour examination by two Assistant U.S. Attorneys. 

While the indictment presents Bonds in a bad light by isolating specific instances of allegedly false answers, skimming through the full transcript shows just how disorganized the prosecutors seemed to be, and how at least one of them couldn't ask a simple question.  Whether it was nervousness or perhaps being intimidated by Bonds, the questions come across almost like a stream of consciousness approach to the examination.  Here's just one example of the kind of questions Bonds faced: "Let me ask the same question about Greg at this point, we'll go into this in a bit more detail, but did you ever get anything else from Greg besides advice or tips on your weight lifting and also the vitamins and the proteins that you already referenced?" (Pg. 23)  Huh?  Understanding that a transcript does not necessarily convey the full flavor of the actual interchanges, in reading through the questioning I'm struck by how convoluted the questions are, punctuated throughout with "I mean," "you know," and similar distracting phrases.

What makes perjury so difficult to prove is that the allegedly false answer is not necessarily the most important thing.  As the Supreme Court noted in Bronston v. United States, 409 U.S. 352 (1973), "Precise questioning is imperative as a predicate for the offense of perjury."  Among the questions recited in the original indictment was this model of obfuscatory inquiry: "So, I guess I got to ask the question again, I mean, did you take steroids?  And specifically this test the [sic] is in November 2000.  So I'm going to ask you in the weeks and months leading up to November 2000  were you taking steroids . . . or anything like that?" 

Prosecutors will no doubt come back with a new indictment of Bonds in the next couple weeks, one which is honed down and focused on just single questions and answers to avoid the duplicity problem that led to the dismissal.  But they can only work with the transcript they have, and finding a clear question -- and answer -- may be quite a challenge.  The questioning of Bonds was not a model of how to set a perjury trap, if that was the goal in having him testify. (ph)

Download us_v_bonds_grand_jury_transcript_bonds.pdf

Was the Rider Related Case A Runaway Grand Jury?

A Grand Jury in Mercer County, New Jersey brought an indictment against school officials, including a dean of students, at Rider University for activities related to the death of a student. (see here)  And it was not surprising to see these charges later dismissed by prosecutors, as the idea of indicting school officials in this context was unusual. (see here).  The ABA L Jrl News is now questioning whether these charges were in fact the result of a runaway grand jury. (see here)

The saying has long been that a prosecutor can get a grand jury to indict a ham sandwich.  But runaway grand juries do happen on occasion.  White collar cases, unlike cases of street crimes, are more likely to use the grand jury process for an investigation.  In street crime cases, the police usually conduct the investigation and present the evidence in a shortened form to the grand jury that decides whether to issue an indictment.  In contrast, in white collar cases the grand jury can be used extensively to procure information via subpoena and to have witnesses testify in the investigation of possible criminal activity.   Although there is no legal requirement to present exculpatory evidence (U.S. v. Williams) to a grand jury, there is an ethical standard that provides that "[n]o prosecutor should knowingly fail to disclose to the grand jury evidence which tends to negate guilt or mitigate the offense." (ABA Standard 3-3.6). There is no allegation here of the prosecutor failing to present exculpatory evidence to the grand jury. But perhaps what is the interesting question is the prosecutorial discretion that a prosecutor has in deciding what cases he or she will investigate before a grand jury.

(esp)

Addedum - See here for details on an upcoming program on "The Impact of Criminal Law on Student Affairs Professionals: Insights into Investigations and Indictments."

Reviewing Grand Jury Transcript

The ABA Jrl, in an article by Debra Cassens Weiss, explores the effect of a recent federal court ruling that allows witnesses to review their grand jury testimony. The title of the article is, "Ruling Thwarts Perjury Prosecutions." 

The court's opinion in In Re Grand Jury states:

"This case raises a question that, surprisingly, has not yet been decided by this court: whether federal grand jury witnesses, after they have testified, are entitled to examine the transcripts of their own testimony. Applying Federal Rule of Criminal Procedure 6(e)(3)(E)(i), we hold that grand jury witnesses are entitled to review the transcripts of their own testimony in private at the U.S. Attorney’s Office or a place agreed to by the parties or designated by the district court."

In rejecting one of the government's arguments, the DC Circuit Court states:

"[T]he Government is concerned about grand jury witnesses (or their attorneys) who disclose information to other grand jury witnesses (or their attorneys) with the purpose of obstructing the criminal investigation. The Government identifies joint defense agreements among attorneys as a threat to the integrity of the grand jury process. But denying witnesses access to their own transcripts to help prevent witnesses from talking to others makes little sense to begin with – and makes even less sense given that grand jury witnesses are under no legal obligation of secrecy. A grand jury witness is legally free to tell, for example, his or her attorney, family, friends, associates, reporters, or bloggers what happened in the grand jury. For that matter, the witness can stand on the courthouse steps and tell the public everything the witness was asked and answered. See Fed. R. Crim. P. 6(e)(2)(A)-(B); Fed. R. Crim. P. 6, Advisory Committee Notes, 1944 Adoption, Note to Subdivision (e) ("rule does not impose any obligation of secrecy on witnesses"). The secrecy rules therefore are no justification for denying witnesses access to their own transcripts."

(esp)(hat tip to John Wesley Hall)

That's What a Subpoena Is For

Every once in a while a line in a company's discussion of a government investigation catches your eye when it appears to miss the point.  Beazer Homes USA is facing a government investigation of its mortgage lending practices, as discussed in a prior post (here).  On March 29, the company filed an 8-K(here) about the investigation, after the media stories first reported the FBI's confirmation of the investigation, that states, "The Company has received a grand jury subpoena from the United States Attorney’s Office in the Western District of North Carolina seeking the production of documents.  The subpoena was issued upon application of the Office of Housing and Urban Development, Office of Inspector General and focuses on the Company’s mortgage origination services.  The Company has not received a request for information or documents from the FBI or IRS in this regard. (Italics added)  Of course, a grand jury subpoena means the FBI is going to get the documents, and it does not have to "request" any information because the subpoena requires Beazer to provide it.  Similarly, if there is a criminal tax investigation, then the IRS can't ask for documents, or even issue a summons, because the case is now in the exclusive jurisdiction of the Department of Justice.  Once the grand jury subpoena arrives, rest assured that a federal investigative agency will be looking at the materials provided for any potential criminal violations -- they don't even need to say "Please" any more. (ph)

Au Revoir, New Century Financial?

The shake-out in the subprime lending market may well take down mortgage lender New Century Financial, which disclosed that its banks have cut off most of its access to credit, the lifeblood of any financial institution.  While executives scramble to prevent a complete meltdown, with the company's shares having lost most of their value and now delisted from the New York Stock Exchange, they also have to deal with grand jury and SEC investigations that will likely target individuals at the company.  According to New Century's 8-K filing on March 13 (here):

On February 28, 2007, the Company received a letter from the United States Attorney’s Office for the Central District of California (the "U.S. Attorney’s Office") indicating that it was conducting a criminal inquiry under the federal securities laws in connection with trading in the Company’s securities, as well as accounting errors regarding the Company’s allowance for repurchase losses. The Company has subsequently received a grand jury subpoena requesting production of certain documents. The Company intends to cooperate with the requests of the U.S. Attorney’s Office.

On March 12, 2007, the Company received a letter from the staff of the Pacific Regional Office of the Securities Exchange Commission stating that the staff was conducting a preliminary investigation involving the Company and requesting production of certain documents. The staff of the SEC had also previously requested a meeting with the Company to discuss the events leading up to the Company’s previous announcement of the need to restate certain of its historical financial statements. The Company intends to cooperate with the requests of the SEC.

If New Century ends up declaring bankruptcy, then the trustee is likely to undertake its own investigation while also providing information to government investigators, which would likely include a waiver of the attorney-client privilege and work product protection.  It is not clear what trading is being looked at, but accounting issues are sure to involve senior management among those who will be questioned. (ph)